BJ Company’s net working capital and all of its expenses vary directly with sales. The firm is currently operating at 86 percent of capacity. The firm wants no additional external financing of any kind. The tax rate is 21 percent and the dividend payout ratio is fixed at 25 percent. Which statement related to next year's pro forma statements must be correct?

c) The firm cannot exceed its internal rate of growth.

Explanation:

As it is mentioned that the working capital and its expense is directly related to the sale plus the firm is operating at 86% with no extra cost.

The tax rate = 21%

Dividend payout ratio = 25%

If we go through the options, option c is correct as a substantial growth rate is less than the actual growth rate due to which we can borrow working capital. and there is no extra cost so it would not be more than the internal growth rate

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